I am perplexed why people new to investing think they know better. There are enough books and articles and interviews by notables like John Bogle, Warren Buffet and many others to learn that what you suggest is not the way to invest.

I went back and forth on "diving in" a little while ago ... the market has hit all time highs on 3 different occasions since I feared the "peak".

Invest enough of a lump sum to get admiral shares of whatever you're buying ... the dollar cost into that. I've been steadily buying back in and ultimately reducing my cost basis by .70/share ... nothing crazy, but it helped mitigate my "fears" - and I own total us for slightly cheaper now, so win/win

amd7239 wrote:Somebody please convince me to get back into the market!

I don’t see the sense in going back into the stock market now. See calculations below. I am in all cash right now. I would love your opinion on my logic.

Assumption #1:
After the next recession (whenever that is), I think it’s fair to say stocks will take some time to return to their current value (based on historical data). For the sake of argument, let’s assume this happens Y years from today, but the # years does not matter at all in this calculation. This is an important assumption to talk about later, but hear me out…

At the Y-year mark, let’s compare 2 strategies: getting back in now and waiting until the market drops to get back in. And compare the returns:

Side note:
I am 27 and have about $50k to invest (in my 401k) – it’s currently all cash (because I switched from employer fund options to brokeragelink in my fidelity 401k in 2014, which forced me to sell all my stocks).

Dividends:
My portfolio (index funds) would give an average 1.5% dividend yield
--> 1.015^x, where x is number of years, tells you the new value due to return from dividends

-----------STRATEGY B: WAIT FOR 15% DROP--------
Appreciation:
> Buy when market is 15% below its current price
> When the market returns to its current price I will have made a 15% return (Portfolio appreciates by a factor of 1.15)

Dividends:
I will ignore the dividend gains from this because I don’t know how long it will take to appreciate 15%.

It would only make sense to go back into the market now if it will took 9.5 years to drop 15%. For this to happen, the market would continue growing and peak in 8 or so years (according to historical data). We've already had 8 years...that would be a 8+8 = 16 year bull market -- possible but highly unlikely!)

Note that Strategy B is NOT emotional – it means putting in a limit order when the market is at 15% below its current value.

As I said earlier, I’m assuming the market returns to its current value someday (Assumption #1). This is definitely the weakest point of my logic. Let’s talk about that in the comments!

Find you optimal asset allocation based on your risk tolerance. Based on your initial questions you seem to be somewhat risk averse so you want more bonds in play. There are plenty of risk questionnaires that help you decide what mix of stocks vs bonds you should have.

Based on your age Vanguard would have you in 90% stocks and 10% bonds. But if you could sleep because you're worrying about losing half your portfolio you may want to be 80/20 or 70/30, 60/40. You have at least 40 years to full retirement age. So i'd get in now and keep plowing money in for the next N years.

At 46, I'm still 75/25 and am slowly increasing my bond allocations each year to reach my goal of 60/40 by 60.

The biggest regret I have is not really starting aggressive saving until I was in my late 30's. Had I started at 27 and put 15% of my salary in each year, I'd have 2.5x what I have today and would be considering retirement in my late 50's vs 62 to 67.

As others said what if the market goes up another 30% before the drop. What if we are just at the beginning the bubble and it runs another 50% to 100%. Heck, the market could drop 10-30% next week. Maybe the next drop is 10%, grows 20 %, drops 10%, grows 20%, etc. If you're waiting on a 15% drop you could be waiting weeks or years. No one knows.

I think I was essentially trying to justify being out of the market and trying to avoid the regret of making that decision in 2014. I should just stay in the market and forget about the price. Deleting the CNBC and Yahoo Finance apps should help with that!

If you want to get in and are still nervous, try one of the following strategies:

1) Dollar cost average in. The math doesn't work, but it's more comforting psychologically if the market plummets right after you invest. Just divide your stash into 3 equal parts, and invest each part once a month. In three months, you're done.

2) Jump in, but hedge your bets. Use a 50/50 stock/bond portfolio. This exposes you to the market so you're keeping up with inflation, but you're also wearing floaties so if the market drops, you won't experience the same volatility. After a 20% drop this AA will give you a better idea of your risk tolerance. If the market goes up, you benefit from your stock position. If the market goes down, you can sell some of the bonds to buy low.

delamer wrote:What if the market goes up 25% before it experiences a 15% drop?

That would be fine. All I want is for it to drop by 15 percent so i cam buy.

lol.. you made my day

In case you missed the poind here that entertained aqan so much:

You've said that as long as the market drops by 15%, you'd buy--even if you were paying 10% more for the stocks than if you bought today.

Would you REALLY rather pay 10% more than today's prices just for the satisfaction of a 15% drop happening too?

I mean, sure, I wanted the satisfaction of turning off the light when I was 4 but someone else did it first so I turned it back on so **I** could be the one to turn it off, but I didn't end up with a sunburn from doing it. I understand the satisfaction, but I (almost) never do that anymore.

The sewer system is a form of welfare state. |
-- "Libra", Don DeLillo

wolf359 wrote:If you want to get in and are still nervous, try one of the following strategies:

1) Dollar cost average in. The math doesn't work, but it's more comforting psychologically if the market plummets right after you invest. Just divide your stash into 3 equal parts, and invest each part once a month. In three months, you're done.

2) Jump in, but hedge your bets. Use a 50/50 stock/bond portfolio. This exposes you to the market so you're keeping up with inflation, but you're also wearing floaties so if the market drops, you won't experience the same volatility. After a 20% drop this AA will give you a better idea of your risk tolerance. If the market goes up, you benefit from your stock position. If the market goes down, you can sell some of the bonds to buy low.

#2 is an interesting idea. I went 100% stocks with a lump sum investment. (2/3 TSM 1/3 Total International). Sure this is risky, but I have a very stable job and am young (27). The only real risk is me pulling out of the market voluntarily. I imagine I will have those "fearful" impulses, but I am going to go to this awesome forum or read a "reminder" article whenever I'm feeling fearful. There's also the simple math that selling at a profit without a guarantee that stocks will fall from the cost basis means you may be buying back less shares than you originally had which is of course stupid. That's a big reason why staying the course is so important.

#1: I didn't want to do DCA mainly because the market was "on sale" (1.5% off) from earlier this week and I believed (but didn't know for sure) that it was based on the trump news and reactions tend to begin with overreactions, then plateau and fizzle out. Also, I know I'm being a market timer again here, but I don't think stocks will plummet in the next couple months with interest rates so low...Although I should be clear in that I have no idea when it will be (1 year? 5 years? 10 years?).

Last edited by amd7239 on Fri May 19, 2017 12:54 pm, edited 3 times in total.

delamer wrote:What if the market goes up 25% before it experiences a 15% drop?

That would be fine. All I want is for it to drop by 15 percent so i cam buy.

lol.. you made my day

In case you missed the poind here that entertained aqan so much:

You've said that as long as the market drops by 15%, you'd buy--even if you were paying 10% more for the stocks than if you bought today.

Would you REALLY rather pay 10% more than today's prices just for the satisfaction of a 15% drop happening too?

I mean, sure, I wanted the satisfaction of turning off the light when I was 4 but someone else did it first so I turned it back on so **I** could be the one to turn it off, but I didn't end up with a sunburn from doing it. I understand the satisfaction, but I (almost) never do that anymore.

Lol no that was just a misunderstanding. Of course I know that 15% of $125 is larger than 15% of $100, I just didn't read the sentence carefully enough (I thought he meant 15% from the current market value)

maj wrote:I hope it does not take you as long as it took me to grasp the implications of Bogle's and Buffet's investment advice.

27 years of age? $50,000.00 to invest in tax-deferred 401k?

Use a Target Date Fund with the stock/bond allocation you prefer. If Vanguard Target Date funds are available, you've hit the jackpot.

peace

I don't like target date funds because I want to maximize my return, I feel like being even 1% bonds at age 27 is kind of silly.

However I was thinking of something recently - what if the automatic bond-stock rebalancing done by the target date fund outweighs the fact that you are 10% bonds (increasing every couple years)? Has anyone done the math on this?

ddurrett896 wrote:the pursuit of a perfect plan ruins a good plan. You're thinking too much - get in!

Agree 100%. And I think the pursuit of a perfect plan can lead to a worse plan too. Using a simple plan like the 3-fund portfolio, knowing that it is likely not the optimal solution (but close enough) has a great effect - I t lowers your expectations. If you have slice and dice you will have high expectations with your portfolio (at least, higher than the S&P 500). And when you lag the market for MONTHS at a time, you want to jump ship, whether that means going 100% S&P 500 or tweaking your slice and dice percentages. And that tweaking would lead you down the rathole of too much information - forum posts about specific percentages, reading through hundreds of different portfolios, etc. And I think that causes you to lose sight of the goal - to stay the course and accumulate the maximum number of shares you can. Of course this isn't true for everyone but I think it is for me.

amd7239 wrote:But is such a YUGE surge even possible? Ot seems the market is overvalued already.

People have been saying that for years.

Suppose you bought this argument three years ago, and pulled out in May of 2014. Since then, the SP500 with reinvestment is up about 34%. I believe the only two times U.S. stocks have dropped significantly more than that are the Great Depression and Great Recession. So, the odds are really starting to stack against such a person.

Where are we going from here? No clue. But consider 1997, which was about 10 years after the late 1980s crash, and we had similar valuations. Over the next three years, the SP500 went up another 80% or so. So even by the time it crashed to the bottom in 2002, it was still up about 11%.

All this is a large part of why market timing doesn't work.

Thanks for your comment!

Are you saying that S&P 500's PE in 1997 was around what it is now? I just looked up and interest rate was 5.5% in 1997 which is much higher than now. All else being equal (although it obviously isn't), this means there may be a lot more room for stock appreciate today than there was in 1997. Do you have any thoughts on this?

I actually want to convince you that you absolutely should not in market right now. I am in, but I don't think you should in. I have a good reason for that, take a look at this video.
search for latest interview with Kessler with wealth track in youtube. That is very convincing. Not convince enough to talk me out of market, but I think it is enough to keep you out. Take a look.

KeithZz wrote:I actually want to convince you that you absolutely should not in market right now. I am in, but I don't think you should in. I have a good reason for that, take a look at this video.
search for latest interview with Kessler with wealth track in youtube. That is very convincing. Not convince enough to talk me out of market, but I think it is enough to keep you out. Take a look.

I'm sure it is extremely convincing and the logic is sound. But nobody can predict how and when every single one of the thousands of variables in the market will change. He may have many right, but not all. And I bet there are some that he hasn't even though of.

KeithZz wrote:I actually want to convince you that you absolutely should not in market right now. I am in, but I don't think you should in. I have a good reason for that, take a look at this video.
search for latest interview with Kessler with wealth track in youtube. That is very convincing. Not convince enough to talk me out of market, but I think it is enough to keep you out. Take a look.

I'm sure it is extremely convincing and the logic is sound. But nobody can predict how and when every single one of the thousands of variables in the market will change. He may have many right, but not all. And I bet there are some that he hasn't even though of.

This is just another opinion for you to consider from Kessler. US normally runs on a 8 years cycle, there is nothing wrong on hold cash now. One should really series with their retirement saving. Once cycle reach its 8 years, the possibility of a market correction with 30 percent or higher is getting really high historically. One should not take risk of lose 30 percent or more to try to earn 5 or 10 or anything. Not saying US market is not even the highest returned investment at all, 30 years strip earn 50 percent average more every year last 30 years with no risk on face at all. Why even consider stock at all. All from Kessler not me, just another opinion to consider.

KeithZz wrote:I actually want to convince you that you absolutely should not in market right now. I am in, but I don't think you should in. I have a good reason for that, take a look at this video.
search for latest interview with Kessler with wealth track in youtube. That is very convincing. Not convince enough to talk me out of market, but I think it is enough to keep you out. Take a look.

I'm sure it is extremely convincing and the logic is sound. But nobody can predict how and when every single one of the thousands of variables in the market will change. He may have many right, but not all. And I bet there are some that he hasn't even though of.

This is just another opinion for you to consider from Kessler. US normally runs on a 8 years cycle, there is nothing wrong on hold cash now. One should really series with their retirement saving. Once cycle reach its 8 years, the possibility of a market correction with 30 percent or higher is getting really high historically. One should not take risk of lose 30 percent or more to try to earn 5 or 10 or anything. Not saying US market is not even the highest returned investment at all, 30 years strip earn 50 percent average more every year last 30 years with no risk on face at all. Why even consider stock at all. All from Kessler not me, just another opinion to consider.

What a load of nonsense - reading '8 year cycles' into our market history is making patterns out of noise. Why don't you tell me what the person who in '95 got spooked on their 8 year cycle having not seen a big drop since '87 missed out on? Was it 5 or 10 of anything?

I'm glad it isn't from you, but this drivel doesn't reflect well on this Kessler person.

KeithZz wrote:I actually want to convince you that you absolutely should not in market right now. I am in, but I don't think you should in. I have a good reason for that, take a look at this video.
search for latest interview with Kessler with wealth track in youtube. That is very convincing. Not convince enough to talk me out of market, but I think it is enough to keep you out. Take a look.

I'm sure it is extremely convincing and the logic is sound. But nobody can predict how and when every single one of the thousands of variables in the market will change. He may have many right, but not all. And I bet there are some that he hasn't even though of.

This is just another opinion for you to consider from Kessler. US normally runs on a 8 years cycle, there is nothing wrong on hold cash now. One should really series with their retirement saving. Once cycle reach its 8 years, the possibility of a market correction with 30 percent or higher is getting really high historically. One should not take risk of lose 30 percent or more to try to earn 5 or 10 or anything. Not saying US market is not even the highest returned investment at all, 30 years strip earn 50 percent average more every year last 30 years with no risk on face at all. Why even consider stock at all. All from Kessler not me, just another opinion to consider.

What a load of nonsense - reading '8 year cycles' into our market history is making patterns out of noise. Why don't you tell me what the person who in '95 got spooked on their 8 year cycle having not seen a big drop since '87 missed out on? Was it 5 or 10 of anything?

I'm glad it isn't from you, but this drivel doesn't reflect well on this Kessler person.

I am not on level to commend Buffet, Jack or Kessler 'drivel'. Those are all well repute millionaire/billionaire thinking for small investors, and on certain level helps small investors doing the right thing. People like bond would probably heard Kessler. Here is his recent interview. If you interest, below is the interview video.https://www.youtube.com/watch?v=fkXLzoo ... L&index=22

KeithZz wrote:I actually want to convince you that you absolutely should not in market right now. I am in, but I don't think you should in. I have a good reason for that, take a look at this video.
search for latest interview with Kessler with wealth track in youtube. That is very convincing. Not convince enough to talk me out of market, but I think it is enough to keep you out. Take a look.

I'm sure it is extremely convincing and the logic is sound. But nobody can predict how and when every single one of the thousands of variables in the market will change. He may have many right, but not all. And I bet there are some that he hasn't even though of.

This is just another opinion for you to consider from Kessler. US normally runs on a 8 years cycle, there is nothing wrong on hold cash now. One should really series with their retirement saving. Once cycle reach its 8 years, the possibility of a market correction with 30 percent or higher is getting really high historically. One should not take risk of lose 30 percent or more to try to earn 5 or 10 or anything. Not saying US market is not even the highest returned investment at all, 30 years strip earn 50 percent average more every year last 30 years with no risk on face at all. Why even consider stock at all. All from Kessler not me, just another opinion to consider.

What a load of nonsense - reading '8 year cycles' into our market history is making patterns out of noise. Why don't you tell me what the person who in '95 got spooked on their 8 year cycle having not seen a big drop since '87 missed out on? Was it 5 or 10 of anything?

I'm glad it isn't from you, but this drivel doesn't reflect well on this Kessler person.

I am not on level to commend Buffet, Jack or Kessler 'drivel'. Those are all well repute millionaire/billionaire thinking for small investors, and on certain level helps small investors doing the right thing. People like bond would probably heard Kessler. Here is his recent interview. If you interest, below is the interview video.https://www.youtube.com/watch?v=fkXLzoo ... L&index=22

This isn't about what level you or I are on or what names you want to throw on the list to try have them reflect on the Kessler. It is simple, as soon as someone starts saying things like 'the US normally runs on 8 years cycles', unless they are talking about every other presidential political event as the cycle, you can safely say that what follows is drivel - and there is no need to add a few pennies to someone's youtube affiliate account to get any deeper into it.

amd7239 wrote:
I'm sure it is extremely convincing and the logic is sound. But nobody can predict how and when every single one of the thousands of variables in the market will change. He may have many right, but not all. And I bet there are some that he hasn't even though of.

This is just another opinion for you to consider from Kessler. US normally runs on a 8 years cycle, there is nothing wrong on hold cash now. One should really series with their retirement saving. Once cycle reach its 8 years, the possibility of a market correction with 30 percent or higher is getting really high historically. One should not take risk of lose 30 percent or more to try to earn 5 or 10 or anything. Not saying US market is not even the highest returned investment at all, 30 years strip earn 50 percent average more every year last 30 years with no risk on face at all. Why even consider stock at all. All from Kessler not me, just another opinion to consider.

What a load of nonsense - reading '8 year cycles' into our market history is making patterns out of noise. Why don't you tell me what the person who in '95 got spooked on their 8 year cycle having not seen a big drop since '87 missed out on? Was it 5 or 10 of anything?

I'm glad it isn't from you, but this drivel doesn't reflect well on this Kessler person.

I am not on level to commend Buffet, Jack or Kessler 'drivel'. Those are all well repute millionaire/billionaire thinking for small investors, and on certain level helps small investors doing the right thing. People like bond would probably heard Kessler. Here is his recent interview. If you interest, below is the interview video.https://www.youtube.com/watch?v=fkXLzoo ... L&index=22

This isn't about what level you or I are on or what names you want to throw on the list to try have them reflect on the Kessler. It is simple, as soon as someone starts saying things like 'the US normally runs on 8 years cycles', unless they are talking about every other presidential political event as the cycle, you can safely say that what follows is drivel - and there is no need to add a few pennies to someone's youtube affiliate account to get any deeper into it.

Well, You have a good point. Have to agree on this, and that's the main reason I still in market and did not cash out.
This is just a fan interview. Some fan words from a bond person to share. Someone may benefit from it, who knows, people's perspective is different.

snackdog wrote:Why do people think the stock market is high? The S&P 500 average annual return from 2000-2016 was only 2.3%. It was went down like hell from 2000-2009 and has only just recovered a bit. The long term average is 10% which leaves huge head room to grow just to return to the historical average.

Actually, money invested at the very top in 2000 has returned 5.8% a year (nominal) from that top to today.

So investing at the very top of the market, at the highest valuations in history in the U.S., has still returned a very decent amount over the past 17 years.

OP, you have 30-40 years to invest. You don't need to worry about getting in at the right time. Even the worst possible times have ended up being a decent time to invest over the long run.

bogleblitz wrote:I recommend doing it slowly. Like convert 10% into stocks every month. or convert 10% into stocks every 3 months.

until you get to your desire allocation 75% stock/ 25% cash or bonds would be pretty safe for a 27 year old.

Why not 100% stocks for someone my age?

Because as soon as the stock market crashes (and it WILL happen, maybe 5 years from now, but maybe tomorrow), your posts make it sound like you will immediately regret buying stocks, and might panic and sell...

I would suggest some bonds, so at least some part of your portfolio is insulated from a crash.

KeithZz wrote:Well, You have a good point. Have to agree on this, and that's the main reason I still in market and did not cash out.
This is just a fan interview. Some fan words from a bond person to share. Someone may benefit from it, who knows, people's perspective is different.

Someone may be harmed by it as well. Keep that in mind when you recommend a blog or a video.

snackdog wrote:Why do people think the stock market is high? The S&P 500 average annual return from 2000-2016 was only 2.3%. It was went down like hell from 2000-2009 and has only just recovered a bit. The long term average is 10% which leaves huge head room to grow just to return to the historical average.

When most people say the stock market is "high", they usually refer to the cyclically adjusted P/E ratio which has a historical mean of ~16. It is currently at 29, which is above its pre-2008 peak. In 2000, it was 45 before the dot com crash. That being said, a high P/E ratio doesn't necessarily mean a crash is coming. It does mean that the likelihood of large gains (like we saw from 2009-2016) are unlikely in the future until the P/E reverts to the mean.

snackdog wrote:Why do people think the stock market is high? The S&P 500 average annual return from 2000-2016 was only 2.3%. It was went down like hell from 2000-2009 and has only just recovered a bit. The long term average is 10% which leaves huge head room to grow just to return to the historical average.

When most people say the stock market is "high", they usually refer to the cyclically adjusted P/E ratio which has a historical mean of ~16. It is currently at 29, which is above its pre-2008 peak. In 2000, it was 45 before the dot com crash. That being said, a high P/E ratio doesn't necessarily mean a crash is coming. It does mean that the likelihood of large gains (like we saw from 2009-2016) are unlikely in the future until the P/E reverts to the mean.

Yes, but remember PE has been "high" (above 20) since 1992. That's almost 25 straight years of "high" valuations (2009 was the lone exception).

Returns have been quite good for anyone ignoring valuations and steadily investing through all those years.

We do not recommend timing the market. The first step is to convince yourself of the folly of taking your money out - especially at the age of 27.

If I were you, I would decide on an AA consistent with my risk tolerance (which should be very high at 27) and then implement it. If the market tanks, you should be happy and keep shoveling money into your portfolio.

I was in your situation last year, relatively new to investing and feeling like I could time the market.

To make a long story short, I got lucky and timed the Brexit tank just about perfectly. I was honest with myself and realized that it was just luck. I had no idea Brexit was going to happen or that the same people screaming sell would be buying just days later.

Since then I have stayed in the market and will hopefully never time again. Not only are you probably not going to significantly improve your return, but it is a very stressful mindset to have.

wolf359 wrote:
... 2) Jump in, but hedge your bets. Use a 50/50 stock/bond portfolio. This exposes you to the market so you're keeping up with inflation, but you're also wearing floaties so if the market drops, you won't experience the same volatility. After a 20% drop this AA will give you a better idea of your risk tolerance. If the market goes up, you benefit from your stock position. If the market goes down, you can sell some of the bonds to buy low.

#2 is an interesting idea. I went 100% stocks with a lump sum investment. (2/3 TSM 1/3 Total International). Sure this is risky, but I have a very stable job and am young (27). The only real risk is me pulling out of the market voluntarily. I imagine I will have those "fearful" impulses, but I am going to go to this awesome forum or read a "reminder" article whenever I'm feeling fearful. There's also the simple math that selling at a profit without a guarantee that stocks will fall from the cost basis means you may be buying back less shares than you originally had which is of course stupid. That's a big reason why staying the course is so important...

amd7239 wrote:
Why not 100% stocks for someone my age?

In your first reply above, are you saying that in fact you have jumped back in and are now 100% stocks? (2/3 TSM and 1/3 Total International)

To answer your second question, you are not "someone your age." You are you: someone who (for whatever reason) went 100% cash 3 years ago and stayed out of the market the entire time. Why didn't you get back in sooner? February 2016? Your thoughts of overvalued markets and buying cheap reveal a fear of losing money so great that you didn't even put a toe back in the water.

With that as the only track record that we have for you, I haven't the slightest bit of faith that you wouldn't bail as soon as stocks drop significantly, which they will. Not being ugly, I'm just saying that I have ridden out some nasty times, and I remember how people were reacting.

Read this thread, all four pages of it, that nisiprius started in 2011: viewtopic.php?f=10&t=79939 ("A time to EVALUATE your jitters", deservedly pinned at the top of the Investing Theory forum.) A lot of very experienced and rational investors were terrified and had a hard time not cutting and running.

I think that wolf359 made an excellent suggestion. Go 50/50 fixed and equities for a year, keep reading, see how you react to the daily ups and downs (and maybe to something nasty), keep reading, and then adjust your AA. Maybe you will go heavier in stocks, maybe even 100%, but to careen back and forth from 0% to 100% is just a terrible idea. Get back in the market to a modest degree, don't worry about catching up, and ease into the right AA for you, once you know what it is.